Author: Katherine Ross, Michael Mcsweeney, Blockworks; Translated by: Tao Zhu, Golden Finance

Silvergate Bank’s parent company, Silvergate Capital, has filed for bankruptcy to wind down its business operations.

We’ve got our first look at what led to the bank’s closure in 2023, and it’s pretty grim.

In short, a person familiar with the matter told us: Despite the pressure, Silvergate is not failing.

This conclusion was supported by a document from the parent company’s former CEO Elaine Hetrick, who wrote that the sudden shift in regulators following FTX “suggests that federal banking regulators will not tolerate banks with significant digital asset customers starting at least in the first quarter of 2023, ultimately preventing Silvergate Bank from continuing its digital asset-centric business model.”

Also interesting is Hetrick’s claim that Silvergate handled a bank run that occurred in 2023.

“Although Silvergate Bank had sufficient assets to repay its debts to depositors and had no lending or other business relationship with FTX other than holding deposits and providing banking account services, the perception of risk and fear of contagion (likely due to a series of cryptocurrency-related bankruptcy proceedings) led to a large withdrawal of deposits from Silvergate Bank,” she wrote.

She added that Silvergate “took decisive action, first to stem the tide of bank runs during the industry crisis and then, following a shift in regulatory approach, to liquidate Silvergate Bank in a manner that protected depositors from losses.”

After the bankruptcy, a major claim was that Silvergate and its executives misled investors, an allegation made by the Securities and Exchange Commission in July when it took legal action against executives and the now-bankrupt bank.

“SCC, [former CEO] Alan Lane, and [former chief risk officer Kathleen] Fraher misrepresented the operational and legal risks faced by the bank in SEC filings and other public statements by falsely stating that the bank had an effective BSA/AML compliance program specifically targeted at the high risks posed by its crypto-asset customers,” the SEC said.

Remember, the Federal Reserve blamed Silvergate’s crypto activities for its failure in a report last October.

But it seemed that Silvergate was, for all intents and purposes, complying with regulators until those regulators began taking a less friendly stance toward banks with higher cryptocurrency concentrations.

Hetrick highlighted a joint statement from the Federal Reserve, the Federal Deposit Insurance Corporation, and the Office of the Comptroller of the Currency in January 2023, all of which raised potential concerns about banks involved in cryptocurrency activities.

The statement warned against allowing any “volatility” to transfer to the traditional banking system.

Following the announcement, Silvergate attempted to restructure its business by ending its cryptocurrency custody business and laying off 200 people, according to Hetrick.

But that’s not enough.

The same regulators continued the pressure in February, issuing another joint statement that mirrored their January statement.

“After a rapid decline in Silvergate Bank’s business, Silvergate Bank has stabilized and is able to meet regulatory capital requirements and is well positioned to continue serving customers who have deposits with Silvergate Bank,” Hetrick said, going on to explain:

“However, increasing regulatory pressure on Silvergate Bank and other banks focused on servicing crypto-asset businesses has forced Silvergate Bank to reshape its business model, move away from crypto-asset businesses, seek to sell itself as a going concern under the shadow of regulatory pressure, or begin winding down its business to preserve as much value as possible for its stakeholders.”

While there’s currently no way to save Silvergate, the 132-page document paints a worrying picture — one in which regulators appear to be more responsible than FTX or any of the now-bankrupt crypto lenders for its collapse.